December 21, 2012

THEY CAN'T STAND WINNING:

In ways inconceivable to Republicans of the 1970s, 1980s, and 1990s, Democrats have embraced almost all of their economic arguments about tax cuts. Back then, sizable swaths of the Democratic Party sought to protect higher tax rates for all. Many opposed President Reagan's 1981 across-the-board tax cuts and the indexing of tax brackets for inflation. Many were skeptical of Reagan's 1986 tax reform that consolidated 15 tax brackets into three and lowered the top marginal rate from 50 percent to 28 percent (with a "bubble rate" of 33 percent for some taxpayers). They despised the expanded child tax credit and marriage-penalty relief called for under the GOP's Contract With America.

Now all of that is embedded in Democratic economic theory and political strategy. The only taxes that the most progressive Democratic president since Lyndon Johnson wants to raise are those affecting couples earning more than $267,600 and individuals earning more than $213,600 (these are the 2013 indexed amounts from President Obama's 2009 proposal of $250,000 for couples and $200,000 for individuals). Yes, some of this increase would hit some small businesses. But that can be finessed.

The larger point is that Republicans are pushing on an open door on taxes. The GOP has won nine-tenths of the tax argument. It just hasn't figured out what do with victory.

This is especially true if, as Democrats suggest, there would be a trade of some structural reforms to Medicare and Medicaid in exchange for raising marginal tax rates on top earners.